A One-Two Punch

by Larry Levin

The market staggered today as it was the recipient of another one-two punch from inflation in the form of oil and the PPI. What's surprising, however, is that the market bothered to get in the ring with inflation: Until now it has simply ignored the challenge. Since it's so much easier to ignore a problem than to face it head on, the market has a high probability of regaining its lost ground tomorrow. "I can't think about that right now. If I do, I'll go crazy. I'll think about that tomorrow." - Scarlett O'Hara

The Europeans have a different tactic with respect to inflation, which is to face it head-on. Unlike Americans, Europeans have a long memory and the ravages of the Weimar Republic hyperinflation hasn't faded from their memoirs as of yet. The US dollar fell hard against the Euro today after Germany's statistical agency reported a stronger-than-expected 5.2% annual rise in April producer price inflation, beating expectations for a reading of 4.7% after a 4.2% annual jump in March.

Given this news, the ECB said its next move may actually be to RAISE interest rates. Wow, Europe is an odd place compared to Washington DC and Wall Street: It not only includes things that climb in price in its inflation measures, it actually reacts to them. And even though our European friends do not participate in the "Inflation Con-Job" that I wrote about a few days ago, it still enjoys a rising stock market and a healthy economy; two things that are feared would go away if the U.S. also included escalating prices in its inflation measures.

I know this will sound like a broken record, but here goes: Oil surged to another never-before-seen-in-human-history record of $129.60 a barrel. It was spurred on with bullish calls by investments banks, supply concerns, and of course weakness in the dollar. I have a hunch that $130.00 will bring in the profit takers and maybe a few brave short sellers. After a slight correction, however, oil will march higher to $150.00-barrel as T.Boone Pickens suggested today.

Before the market opened, inflation concerns were fueled by the PPI report that showed wholesale prices outside of food and energy rose the most in about 17 years. Core producer prices, which exclude food and energy, rose a higher-than-expected 0.4% in April, or 3% year-on-year...the fastest rise since late 1991.

This morning Home Depot said its profit dropped 66% and said the housing and home improvement markets remained difficult in the first quarter. "In fact, conditions worsened in many areas of the country," CEO Frank Blake said. HD fell 5.2% on the news. It's too bad HD didn't release this news a few weeks ago because if it had, its stock would have been bid up at least 10%. Are times changing?

Another idiot Senator was on TV today telling us how he is prepared to regulate something he doesn't like: rising oil prices. Joe Lieberman says speculators have everything to do with the high cost of oil and he wants to stop you from buying it. There isn't much that needs to be said other than he is a moron for wanting to retard a free market. Speculators are not the problem.

Never once while spewing this drivel did he mention the Federal Reserve debasing the US dollar to the level of toilet paper, nor the outrageous debt the Congress has run up (both affecting the value of the dollar), nor the fact that the "green types" would rather you pay $130-barrel for oil than allow us to drill for it in our own country.

Naaaaah, it's Jim Smith's fault because he's long a one-lot of July crude oil in a $5,000 brokerage account. NOT! Senator Lieberman - you sir, are a glittering jewel of colossal ignorance! How is it that those among us with IQ's of 72 become Senators of this country?

Real Time Trading Signals*for

Trade Date: 5/19/08

E-Mini S&P Trades*
(before fees and commissions):

1) B/away sell @ 8:35am at 1421.00 = +2.50 (1 lot)

2) OTF sell @ 10:00am at 1418.00 = +3.00 (1 lot)

3) Engf sell @ 10:30am at 1414.25 = +.50 (1 lot)

4) OTF sell @ 11:10am at 1415.25 = -1.25 (1 lot)

5) FT sell @ 1:35pm at 1412.00 = b/e (1 lot)

6) FT sell @ 2:05pm at 1412.75 = b/e (1 lot)

7) Algorithm trades (6)...combined total...+10.25

E-Mini Russell Trades*
(before fees and commissions):

1) Sell @ 9:42am at 734.8 = -.9 (1 lot)

2) Sell @ 12:49pm at 735.6 = +.6 (1 lot) ...-$30.00


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